We're doomed. It's official. The Local Government Association's dryly titled Funding Outlook for Councils from 2010/11 to 2019/20, launched last week, shows that eight years from now there will be little money to spend on anything apart from social care and waste. So what is to be done?

The LGA paper should be read by all local government managers and politicians. It is an impressive analysis of both the prognosis for long-term funding and the implications for public policy.

The response to the document by communities secretary Eric Pickles is noteworthy for what he did not say as well as what he did. In his speech to the LGA's annual conference he did not accuse the LGA of shroud-waving – the optimistic assumptions on efficiency savings and income underpinning the projections rendered such an accusation untenable.

What Pickles did say was that the LGA's message on social care funding was a powerful one and the issue needs to be central to the next spending review. Local government's voice on the consequences of a further round of severe cuts in the next spending round is beginning to be heard.

So what reforms – apart from realistic funding of social care – will be propelled by this financial reality? One possible outcome would be to put social care into a national care service or the NHS. Both would carry huge financial and political risk.

In the two decades that social care has been locally funded council managers have been tough, even ruthless, in their management of care costs, while there would surely be little appetite for yet another upheaval in the health service. The argument that it would integrate care does not stack up; the NHS still struggles to integrate care within many hospitals.

Some of the tools for other reforms are already in the government's hands. The new round of "city deals" announced this week is good news, but why not extend the approach to every council?

Don't rural areas and unitary towns and cities want to invest in transport, create jobs, start new apprenticeship schemes and invest in broadband? The financing would have to be considerably more modest because of the much lower business rate income, but there is still room for manoeuvre.

The "community budget" approach – pooling funds from disparate sources to provide coordinated solutions to complex issues such as helping troubled families or meeting the needs of older people – also needs to be rolled out nationally. We do not need endless pilots and assessments to know that integrating public services is a good idea. And, as Westminster city council's Conservative leader Philippa Roe told the conference, ministers need to remove bureaucratic obstacles such as barriers to sharing data and pooling savings as well as funding. It will also require a different type of public servant, more adept at working across systems and co-ordinating rather than controlling.

But alongside this, councils need an honest discussion with local citizens about what levels of services they want, and what they are willing to pay for it. That means ministers ending the central bullying over council tax levels and allow local people and politicians to talk. Powers to raise supplementary taxes are also needed; the political reality is that this would require yet more pilots, to demonstrate consultations are open and effective and the money raised is invested for the long term, such as in infrastructure and training.

And then there is cutting services out. When the public sector is reduced to building an aircraft carrier with no aircraft it is clear there are few no go areas for cuts. According to the LGA, councils have 1,300 statutory duties and some of these could be rescinded. But the likely outcome is big political fallout for little financial gain, scrapping some of local government's regulatory functions for example.

Simply paring back services will harm the most vulnerable. There is a risk, highlighted by Lord Victor Adebowale this week, that if those who are slipping under the wheels of this recession do not see the council trying to support them, increasing numbers of people could start to question the point of local government.

The political positioning for local government around all this is an almost impossible balancing act.

While exposing the reality of cuts, which it has now done, it also needs to position itself as the answer to the financial and policy requirement for a smaller state. And that means pressing for wholesale change in the centre.

Richard Vize is a commentator on public policy and management. Follow him on Twitter @RichardVize